Are Company Cars Worth the Cost?

Are Company Cars Worth the Cost?
The Siliconreview
28 October, 2019

Company cars used to be a highly tax-efficient perk for employees. In recent years the taxman has had other ideas, though. Now employees have to pay tax on ‘Benefit in Kind’, based on a combination of the value of the car, its CO2 emissions, and the employee’s income tax rate.

The net result is that company cars now represent a relatively expensive company perk, although in many cases the alternatives aren’t much better.

The employee could use their own vehicle and charge their boss for business mileage. These are amounts prescribed by the Inland Revenue and do not take depreciation into account. The other option is for the company to have a fleet of cars that are for the use of specified people at agreed times.

Running a Fleet of Cars

Running a fleet of cars can be the cheapest option all round. Once the vehicles have been purchased, they are made available to individuals when they need to use them. This way, the employee has a smaller ‘benefit in kind’ and will pay less tax from their pay packet.

From the employer’s point of view, they can generally do a deal with a garage to get routine servicing and repairs done at a reasonable cost because they own several vehicles.

And from an insurance point of view, they can look at fleet insurance as this is usually cheaper than insuring each car on its own. The simplest way to research the best insurance options is to take a look at a site like that uses multiple insurance companies and is very user-friendly, making it easy to find the quotes you need.

It might be an idea to find out a little more about fleet insurance first though. It can be a very convenient way of insuring all your vehicles, regardless of if they are cars, vans, trucks, buses or HGVs. One renewal date for them all makes much more sense than having to know when the insurance policy needs to be renewed on each vehicle. Most companies will not consider fleet insurance if you have less than five motors on the road, but there are a few that will do it with just two vehicles.

It can be set up however you want it. Specific drivers can be allowed access to certain vehicles for instance, or you can be covered for any driver with permission. All of these differences will become clear when you research the options. Your choice may be governed by the quotes you receive, as they can vary quite a bit.

The Losses Sustained on New Cars

A big problem with a company owning a fleet of vehicles is the instant losses the business suffers when the cars are driven off the forecourt. As soon as they touch the road, they become a used vehicle and their value drops dramatically.

If a company has several vehicles, this can make a difference to their profits for the year as the value of the vehicles has to be written down in their accounts. This is great for tax purposes as it will lower the tax bill, but not so good for resale purposes.

It is exactly why so many businesses now choose to buy cars that are a few months old. That first hit in depreciation has already been lost and although the vehicles will still go down in value, the company will not have to suffer that first big hit.

The Mileage Way

Some employers prefer to pay their employees mileage instead of owning the vehicles themselves. They can pay up to 45pencea mile for the first 10,000 business miles without the need to deduct tax from it, and 25 pencea mile after that. Those are the current maximum amounts that can be paid per mile tax-free and that the employer can still claim tax relief for.

The problem arises when a vehicle breaks down, or the motor they are using is an old wreck. If they are representing your company, do you really want them turning up in a battered old car? Their vehicle should be reliable and respectable, but unfortunately going the mileage way does not give a company any right to insist on this.

Vehicles That Are a Must

There are some businesses where owning a fleet of vehicles is a must. Delivery businesses and emergency services are just two examples that could not operate without them. These vehicles tend not to be available for private use though, which can help to make the running cost of them a little less.

When it comes to company cars and if they are worthwhile, only the owners can make that decision. There are advantages and disadvantages that have to be weighed up, including their cost vs. their convenience.